Merkel tax cuts

Merkel's new center-right government intends to rely heavily on tax cuts to boost the country's ailing economy, while avoiding major cuts in public spending.

The plan to spend Germany out of its economic slump would further add to the country's burgeoning debt for years to come and contravene the European Union's debt ceiling rules.

A panel of economic experts on Friday issued a stinging critique of the chancellor's plans, calling them "vague" and "deceptive".

The group of so-called "Five Wise Men" said Merkel failed to recognize the scale of the challenges facing Europe's largest economy. The group of independent academics which advises the German government and parliament on economic policy issues said the new coalition had not spelled out how it will reduce Germany's budget deficit and the massive stimulus measures propping up the economy.

Spending cuts would worsen the crisis, says Merkel

The chancellor countered, however, saying that "of course it is right to consolidate public spending, but if we start doing that at the bottom of the economic crisis we will only be making the crisis worse."

Export dependent Germany has been hit hard by the global recession, but is already beginning to recover. The Merkel government argues that lower taxes, coupled with continued public spending, will kick-start the economy and lead to higher tax revenues as business expands and more jobs are created.

Economics Minister Rainer Bruederle sharply rebuked the economists for their objections, saying "professors cannot replace the reasoning of political leaders. That's why they are advisers and not decision-makers."

Merkel said she was "aware that her strategy carried risks, but that the decision was reached after thoroughly considering all the pros and cons."

The chancellor emphasized that "self-supporting economic growth" was necessary and warned that "a lack of recovery with years of weak and unstable finances would end up being more expensive for the public purse than courageous action."


gb/dpa/AP/AFP/Reuters
Editor: Andreas Illmer